How Treaties Facilitate Company's Expansion in Foreign Territory - Essay Example

Executive Summary International trade often means venturing into the unknown leaving the impression that a company risks exposing itself to an uncertain financial future. These issues arise out of the knowledge that foreign nations have vastly different laws that could lead to long and expensive litigation in the event of a dispute under a sales’ contract or infringement of intellectual property rights. However, there are certain multilateral trade conventions and treaties that effectively remove those fears and are specifically designed to remove those barriers to international expansion. This report provides some insight into the dynamics of these treaties and conventions and explains how they can and will facilitate the expansion of this company into foreign territory. Report The advancement of modern technology has changed global mobility in such a way that the concept of free and open markets have given rise to a form of “deterretorialization”.1 The transnational trade regime has been altered by this new age of globalization to the extent that world trade is no longer constrained by borders.2 Treaties and Conventions have been attempting to harmonize international commercial activities.3 Some of these Treaties and Conventions are relevant to this company’s plans to expand into foreign territories and will impact upon the employment contracts, contracts for the sale of its products outside of the UK and protection of intellectual property across borders. Trade in Goods and Services on an International Level Expansion into the European Community will not have any real consequences since the UK is already bound by the harmonization that characterizes the UK. The primary goal of the Treaty Establishing the European Community if one of unity and harmony. Article 2 of the Treaty provides as follows: “The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing common policies …a harmonious, balanced and sustainable development of economic activities, a high level of employment and of social protection, equality between men and women, sustainable and non-inflationary growth, a high degree of competitiveness and convergence of economic performance, a high level of protection and improvement of the quality of the environment, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.”4 In accordance with the principles set forth in Article 2 of the Treaty of Rome, Articles 23-31 provides for the free movement of goods within the European Community within the framework of a free and open market regime.5 Contracts for the sale of computer software among member states will therefore be regulated by Articles 23-31. Article 23 provides for the exemption of customs duties on all imports and exports throughout the Member States,6 therefore all exports and imports with respect to computer software within the European Community will benefit from the Article 23 exemption. By virtue of Article 28 will not permit this company to be subjected to: “Quantitative restrictions on imports and all measures having equivalent effect …between Member States.”7 Article 29 provides for similar protection in respect of exports.8 These bars to quantitative restrictions are subject to the proviso contained in Article 30 which provides that: “…Articles 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.”9 In Cassis de Dijon (1979)[ECR 1979 the European Court pronounced that Article 2 of the Treaty of Rome requires mutual recognition among member states. The court essentially held that once a product is lawfully produced and manufactured in one member state it can be marketed in another.10 Based upon this ruling and the provisions contained in Articles 23-31 the computer software can be freely distributed throughout the European Community in much the same manner that it can be distributed within the UK. In keeping with the doctrine of free and open markets it is also important to consider the impact of Article 81 when entering into contracts for sale or mergers with other entities on third parties. Article 81 strictly prohibits unfair competition policies as follows: “…all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the common market“.11 It is important to guard against undertakings that might be construed as collusion. For instance an agreement to supply computer software to one company with the proviso that it not purchase software from another company will offend Article 81. Agreeing to sell the products at a substantial undervalue can also be construed as unfair competition practice.12 Article 82(a) addresses the issue of unfair market prices and specifically prohibits this kind of conduct on the grounds that it is contrary to fair competition standards. Article 82(a) provides that: “Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. Such abuse may, in particular, consist in : (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions…’(Treaty Establishing the European Community Article 82(a))”13 Employment of staff outside of the UK but inside the European Community is provided for in Article 3 of the Treaty Establishing the European Community which encompassed the four pillars of freedom. These freedoms are contained in: “…an internal market characterised by the abolition, as between Member States, of obstacles to the free movement of goods, persons, services and capital.”14 Therefore all employment contracts will be constructed around Article 3(c) of the Treaty of Rome. Moreover, Regulation 1612/68 - Directive 68/360 requires that member states allow for the free movement of citizens within their respective jurisdictions for the purpose of working.15 By virtue of these provisions the software company will not be required to make applications for the recruitment of staff within the European Community. On a more global scale outside of the European Community the WTO’s General Agreement on Trade in Services will apply to the software company‘s expansion plans. The General Agreement on Trade in Services (GATS) came into effect in January 1995.16 It makes provision for international trade agreements with respect to trans-border services. GATS is generally characterized by an agenda which advances an anti-discriminatory approach to these kinds of transactions.17 GATS provides a legal framework whereby its member states regulate their services in trans-border trade so as to allow for the free movement of persons within their territories. This is achieved by harmonization of the substantive laws.18 The UK is a member state to the WTO and as such has indorsed the GATS Agreement. Provided the software company employs persons from other WTO member states in all likelihood the substantive laws regulating employment contracts will be essentially the same as that of the UK. Intellectual Property Rights Protection The World Trade Organisation members are required to indorse the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) . Any software sold in any of the WTO member states will be protected by Article 41 of TRIPS provided they are registered in the originating member state. Intellectual property rights attach to trademarks, copyright and/or patents19 all of which can be claimed by the software products. Article 41 provides as follows: “Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.”20 Moreover, Article 28 confers the following rights on a patentee: “ (a) where the subject matter of a patent is a product, to prevent third parties not having the owners consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product; where the subject matter of a patent is a process, to prevent third parties no having the owners consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process.”21 Article 64 of the TRIPS facilitates the settlement of disputes associated with infringement of patented rights. The computer software company will have five years to commence proceedings for settlement before the TRIPS Council. However this timeframe can be extended the parties to the dispute agree.22 It is important to note at this juncture that Article 6 of the TRIPS Agreement provides that:  “For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.”23 Article 3 as contained in Article 6 above refers to National Treatment requiring that member states treat nationals and entities coming from other member states in a manner similar to the way that they treat their own in respect of Intellectual Property Rights.24 Article 4 refers to the Most Favored Nation Treatment in respect of Intellectual Property Rights, dictates that any privilege conferred upon one member state will be conferred upon all Member States.25 The doctrine of exhaustion constrains the perpetuation of Intellectual Property Rights. The cessation of intellectual property rights is thought to be necessary for productive market economic activity since it facilitates the freed movement of goods. 26 Before the implementation the TRIPS Agreement domestic laws determined the application of the doctrine of exhaustion. In the United States of America the doctrine contemplated the “first sale” ideology. In Adams v. Burke U.S. (17 Wall) 453 (1873 it was held that: “…in the essential nature of things, when the patentee, or the person having his rights, sells a machine or instrument whose sole value is in its use, he receives the consideration for its use and he parts with the right to restrict that use. The article, in the language of the court, passes without the limit of the monopoly. That is to say, the patentee or his assignee having in the act of sale received all the royalty or consideration which he claims for the use of his invention in that particular machine.”27 The European Court of Justice implemented a similar doctrine in Consten and Grundig v. Commission, Cases 56, 58/64, [1966] ECR 299. In this case an audio equipments manufacture attempted to prevent the free trading of his patented property among the Member States within the European Union by insisting on parallel patent protection. The European Court of Justice rejected the attempt imposing what it referred to as an “intra-Community exhaustion doctrine.”28 It is generally accepted however, that the doctrine of exhaustion under TRIPS is essentially a matter for domestic regulations for countries within the European Free Trade Area.29 This policy in founded on general principles of free and open markets within the European Community with the result that the computer software company will not be at liberty to block third party sales of its products once they enter the European market. Protection against piracy and counterfeiting is provided for under both TRIPS and European Community law. TRIPS compartmentalizes intellectual property laws into a harmonized legal framework requiring WTO member states to implement laws that contain minimum standards for the protection and enforcement of intellectual property rights.30 The European Community by virtue of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights makes specific provisions for the enforcement of protection of intellectual property rights.31 Under Directive 2004/48/EC the European Court of Justice may take issue with a member state in the event its intellectual property rights law for protection and enforcement are: "unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays". 32 Article 3(2) provides some comfort in the knowledge that piracy of the registered software will be subject to prosecution. Article 3(2) requires that member states implement effective laws for the prevention and prosecution of piracy and intellectual property rights.33 Conclusion In accordance with the multilateral trade agreements and the European Community’s doctrine of unity the software company will suffer no obstacles to expansion and merging with companies outside of the UK provided those countries are either or both members of the European Community and the WTO. Based on the authorities cited above the software company will be able to expand abroad and at the same time protect its intellectual property rights in much the same manner as it is protected at home. Bibliography Adams v. Burke U.S. (17 Wall) 453 (1873) Berger, Kluas, Peter.(2001) Transnational Commercial Law and the Age of Globalization. Available online at: http://72.14.209.104/search?q=cache:34EqbThHeZ4J:w3.uniroma1.it/idc/centro/publications/42berger.pdf+The+globalization+of+international+commercial+law&hl=en&ct=clnk&cd=7&gl=us Retrieved January 17, 2008 Berman, Paul, Schiff. (2005) “From International Law to Law and Globalization.” Columbia Journal of Transnational Law. Vol 43 p 485 Braithwaite, John and Drahos, Peter. (2000) Global Business Regulations. London: Cambridge University Press Cassis de Dijon (1979) ECR 649 Cohn, Theodore H. (2005). Global Political Economy Theory and Practice. Longman Consten and Grundig v. Commission, Cases 56, 58/64, [1966] ECR 299 European Community Directive 2004/48/EC Madeley, John. (1999) Big Business, Poor Peoples: The Impact of Transnational Corporations on the Poor. Zed Books. MAG Instrument Inc v California Trading Co. Norway, Ulsteen Case E-2/97, 1997 EFTA Ct, 127 [1998] 1 C.M.L.R. 331 Revesz, J. (1999), Trade-Related Aspects of Intellectual Property Rights, ProductivityCommission Staff Research Paper, AGPS, Canberra. Tharakan, P.K.M. (1995): The Political Economy of Contingent Protection; in: The Economic Journal, Vol. 105, No. 433 Trade-Related Aspects of Intellectual Property Treaty Establishing the European Community. Article 2 Available online at: http://eur-lex.europa.eu/en/treaties/dat/12002E/htm/C_2002325EN.003301.html Retrieved January 17, 2008 TRIPS Agreement. Article 6.Available online at: http://www.wto.org/english/tratop_e/trips_e/t_agm2_e.htm Retrieved January 18, 2008 United Brands Co v EC Commission [1978] ECR 207 Read More